Manufacturer A has a profit margin of 2.0%, an asset turnover of 1.7 and an equity multiplier of 4.9. Manufacturer B has a profit margin of 2.3%, an asset turnover of 1.1 and an equity multiplier of 4.7. How much asset turnover should manufacturer B have to match manufacturer A's ROE?

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Business

Anika Short

22 June, 04:12

Manufacturer A has a profit margin of 2.0%, an asset turnover of 1.7 and an equity multiplier of 4.9. Manufacturer B has a profit margin of 2.3%, an asset turnover of 1.1 and an equity multiplier of 4.7. How much asset turnover should manufacturer B have to match manufacturer A's ROE?

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Answers (1)

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Walsh · Answer 1

1.54

Explanation:

As we know that

The DuPont Analysis is

ROE = Profit margin * Total assets turnover * Equity multiplier

So we considered this formula for Manufacturer A and Manufactured B

Profit margin * Total assets turnover * Equity multiplier = Profit margin * Total assets turnover * Equity multiplier

2.0% * 1.7 * 4.9 = 2.3% * Asset turnover * 4.7

16.66% = 10.81% * Asset turnover

So, the asset turnover is 1.54

We equate this formula for both Manufactured A and manufactured B